Borders Moves Closer to Liquidation

40-Year-Old Book Chain Once Operated More Than 1,000 Stores

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Borders Group, the bankrupt bookstore chain, will start its asset auction with an offer from liquidators after failing to persuade a private-equity firm to keep the company running.

U.S. Bankruptcy Judge Martin Glenn in Manhattan today approved a procedure to auction Borders' assets that makes a group of liquidators, rather than Najafi Cos.' BB Brands, the so-called stalking-horse bidder. Stalking-horse bids, which provide protections for interested parties who do work valuing assets, become default purchase agreements if no other bids are made.

Borders remains hopeful it will be able to stay in business, company lawyer Andrew Glenn, no relation to the judge, said in court today. Najafi has said it may bid at the auction and Borders has received other inquiries, he said, without saying how many.

Barnes & Noble "gave us an offer for certain assets," Andrew Glenn said. "They could come in and team with the liquidators."

Mary Ellen Keating, a Barnes & Noble spokeswoman, declined to comment.

Judge Glenn's ruling came after a last-minute reversal for Borders, the second-largest bookstore chain after Barnes & Noble. After negotiating all through last night, creditors and Najafi failed to reach an agreement that would have forced the Phoenix-based firm to keep the company operating, Borders' lawyers said.

Borders has throughout its Chapter 11 case pursued a "dual-track process" so it could proceed with a sale to liquidators if it isn't acquired, according to court filings. The liquidators include Hilco Merchant Resources and Gordon Brothers Retail Partners.

If the company is going to liquidate its remaining 400 stores, creditors would prefer to have it done under the control of the company, with its chosen liquidators, creditors' lawyer Bruce Buechler said. Any valuable assets, such as intellectual property and real estate, could be sold separately, possibly bringing in more money for creditors, he said.

The agreement with liquidators is based on an estimated $350 million to $395 million cost value of all Borders merchandise, according to court papers. An auction is still set to test for higher offers. If there isn't enough interest to conduct an auction, Borders will notify the bankruptcy court by July 18, according to court papers.

Borders, founded 40 years ago as a single used-book store, had 642 stores in February when it sought court protection. It closed 237 stores during the Chapter 11 case, leaving 405 operating.

The book chain, which once operated more than 1,000 stores, lost business as customers switched to e-readers such as Amazon's Kindle, introduced in 2007. Barnes & Noble has also invested in its own Nook device to attract customers.

In recent years, Borders has spent only a few million dollars on measured media annually, according to Kantar. In 2010, it spent $5.5 million, up from $1 million in 2009.

-- Bloomberg News --

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